Tuesday, March 04, 2008

In In re Syncor ERISA Litigation, ___ F.3d ___ (9th Cir. Feb. 17, 2008), the Ninth Circuit held that the district court abused its discretion by refusing to conduct a Rule 23(e)(2) preliminary approval hearing after the parties notified the court that they had reached a settlement. Instead of enforcing the parties' settlement, the district court went ahead and granted the defendant's pending summary judgment motion, which had previously been argued and submitted for decision. The district court also denied the plaintiffs' motion to set aside the judgment based on the formation of a binding settlement that preceded the summary judgment ruling. This, the Ninth Circuit determined, was error:

The parties agree that they had reached an enforceable settlement agreement subject to court approval. Our court has previously held that the requirement that the district court approve a class action settlement does not affect the binding nature of the parties’ agreement. See Collins v. Thompson, 679 F.2d 168, 172 (9th Cir. 1982) (“Judicial approval of a [class action settlement] is clearly a condition subsequent, and should not affect the legality of the formation of the proposed [settlement] as between the negotiating parties.”) At the time of the settlement, Defendants knew they had dispositive motions pending and chose the certainty of settlement rather than the gamble of a ruling on their motions. Thus, Defendants chose to forego the chance that the district court would grant summary judgment in their favor. Because the parties bound themselves to a settlement agreement subject only to court approval (which they had agreed to seek) and gave the required notice of the agreement, the district court should not have (1) filed its order granting the motions for summary judgment and (2) entered final judgments against the Class.

Slip op. at 1440-41. The Ninth Circuit further noted the important function of the settlement process, especially in class actions:

Additionally, there is a strong judicial policy that favors settlements, particularly where complex class action litigation is concerned. See Class Plaintiffs, 955 F.2d at 1276. In Officers for Justice v. Civil Service Comm’n of the City and County of San Francisco, 688 F.2d 615 (9th Cir. 1982), we specifically stated that, “it must not be overlooked that voluntary conciliation and settlement are the preferred means of dispute resolution. This is especially true in complex class action litigation ....” Id. at 625. This policy is also evident in the Federal Rules of Civil Procedure and the Local Rules of the United States District Court, Central District of California, which encourage facilitating the settlement of cases. See Fed. R. Civ. P. 16(a)(5) (one of the five purposes of a pretrial conference is to facilitate settlement); L.R. 16-2.9 (requiring parties to exhaust all possibilities of settlement); L.R. 16-15 to 15.9 (setting forth policies and procedures for settlement including encouraging disposition of civil litigation by settlement by any reasonable means). The record demonstrates that the Class complied with the local rules by reporting the settlement immediately to the trial judge’s courtroom deputy clerk and timely memorializing the settlement. See L.R. 16-15.7. The district court, nevertheless, refused to vacate the summary judgment order and subsequent final judgments even though the parties had entered a binding settlement agreement subject only to the district court’s approval pursuant to Rule 23(e).

Slip op. at 1441-42. The opinion illustrates the importance of immediately notifying the court when a settlement is reached, especially if dispositive motions are pending:

Because the parties provided appropriate notice to the district court of the settlement agreement, the court should never have filed its order or entered the final judgments. The parties informed the district court that they had entered a binding settlement agreement the day before the district court entered its summary judgment order and two days before the district court entered the final judgments. The district court thus should have reviewed the settlement document as required under Fed. R. Civ. P. 23(e). The district court’s management of its docket must not undercut a valid settlement agreement between the parties that is appropriately provided to the district court for review.

That the district court had already drafted a summary judgment order is not justification for refusing to approve an otherwise enforceable settlement agreement between the parties. The district court is not a party to the settlement. The court’s role in the class action settlement process is to protect the right of those not involved in negotiating the settlement, generally the unnamed class members. Officers for Justice, 688 F.2d at 624 (stating the primary concern of section 23(e) is the protection of those class members, whose rights may not have been given due regard by the negotiating parties).